Dollar Tree selling Family Dollar to private equity firms for $1B

Dollar Tree is selling Family Dollar to a pair of private equity firms for $1 billion after a decade of trying to make its acquisition of the bargain chain fit.

Dollar Tree Inc. acquired Family Dollar for more than $8 billion in 2015 after a bidding war with rival Dollar General.

Neil Saunders, managing director of GlobalData, said that after acquiring the rival chain, Dollar Tree struggled with supply chain issues, poor store locations and other operational difficulties.

“Basically, Dollar Tree bit off far more than it could chew,” he said.

Last year, Dollar Tree announced that it planned to close hundreds of Family Dollar stores.

Family Dollar had 7,600 stores as of Feb. 1, while Dollar Tree had 8,868. There are 220 Dollar Tree stores and 98 Family Dollar stores in Indiana, according to the company. Indianapolis has 38 Dollar Tree stores and 36 Family Dollar stores.

Dollar Tree had been scouting options for Family Dollar for a while and said Wednesday that the sale to Brigade Capital Management and Macellum Capital Management will allow it to focus on its core business.

“This is a major milestone in our multi-year transformation journey to help us fully achieve our potential,” said Mike Creedon, who was made permanent chief executive officer of Dollar Tree late last year.

The Family Dollar business recorded an operating loss of $1.8 billion in Dollar Tree’s latest fiscal year, which ended Feb. 1. Dollar Tree also recorded a loss of billions on paper for the fourth quarter related to Family Dollar as it wrote off the value of the brand and its assets.

Characterizing the sale as a “major milestone,” Creedon said Wednesday that Dollar Tree intends to open new stores and pursue other initiatives including “transactions that advance our growth strategy.”

Bargain chains like Dollar Tree, which have raised some of their prices in recent years, are finding that they have little room to maneuver. Americans have tightened their spending as consumer confidence in the economy slides.

Family Dollar, which moved its headquarters from North Carolina to Chesapeake, Virginia, after the sale to Dollar Tree, will maintain its headquarters in Virginia.

Dollar Tree expects $804 million in net proceeds from the sale, and $350 million in tax benefits from losses on the sale, the company said in its quarterly financial report

“This transaction presented a unique opportunity to play a key role in reinvigorating an iconic business,” Jonathan Duskin, CEO and Partner of Macellum, said.

Saunders said Brigade and Macellum with have several issues to fix at Family Dollar, including pricing that isn’t as sharp as many of its rivals and a customer base that isn’t as loyal.

The deal is expected to close later in the second quarter.

Shares of Dollar Tree were up more than 8%, to $72.61 each, on Wednesday morning.